Savers hit again by latest cut

Millions of homeowners were quids in this week following the surprise 0.5% interest rate cut, but their good fortune is likely to fuel growing discontent among savers angry about the paltry returns they are getting.

Many mortgage lenders were quick to pass on the full base rate reduction to their borrowers, resulting in the lowest home loan rates since 1955. However savers can't be blamed for feeling it is they who are going to have to pick up the tab.

Many older people who rely on their savings for income will be beside themselves. They are caught between a rock and a hard place - savings rates are dismal but stock market volatility means they may not want to put their money there either.

Nikki Foster at independent financial adviser Chase de Vere says it is clearly a difficult time for savers. "With inflation at 2.3% you are really not getting much for your money at all. Savers have to seriously think about the amounts they are keeping on deposit and whether they really need to keep those levels." It tends to be retired people that often like to keep very large sums on deposit, where rates can be pretty miserable. "They will probably have to start to look more at corporate bonds, gilts and with-profits bonds."

Even before this week's move, the average instant access account rate for a balance of £5,000 was just 0.68% on November 1 - less than half what it was a year ago, said financial data provider Moneyfacts.

So savers should take this opportunity to look at the rate they are getting. If it's pathetic, consider moving your money somewhere else - check out our best buys on page 17 and sites such as www.moneyfacts.co.uk The same advice applies to mortgage-holders who are sitting on uncompetitive standard variable rates or tied in to expensive fixed-rate deals.

Fixed and discounted-rate mortgage deals are now more competitively priced than ever, says Mark Harris of mortgage broker Savills Private Finance. His favourite mortgage is a discount tracker loan which promises to be 1% under the bank base rate for two years, with no penalties at the end of the term. That means an initial pay rate of just 3%, which will track down (and up) in line with the base rate. The lender is Mortgage Express and the deal is available through brokers including Savills and Charcol. Buyers, whether first-time or remortgagers, will need a 25% deposit. If you can only manage a deposit of 5%-25%, the rate is 0.75% below base rate, giving an initial pay rate of 3.25%.

If you prefer the certainty of a fixed rate, then Mr Harris says the five-year deals are currently the most attractive, falling this week below 5%. Derbyshire building society is offering 4.99% over five years for loans up to 75% of the value of the property, and 5.15% if the loan is up to 95%. Charcol has an exclusive deal funded by Portman building society fixed at 4.99% for five years for loans up to 95%, with penalties up to the end of the term. Meanwhile Britannia building society offers the best two-year fix at 4.44%, says Savills.

The good news for people with standard variable, discounted and base rate tracker home loans is that Halifax, Nationwide, HSBC, Bank of Scotland, Virgin One and Intelligent Finance are among the lenders passing on the full 0.5% rate cut. For a typical borrower with a £60,000 interest-only mortgage, this translates into a monthly saving of around £25.